Does Exchange Rate Exposure Matter?

43 Pages Posted: 8 Jun 2002  

Rohan Williamson

Georgetown University - McDonough School of Business

John M. Griffin

University of Texas at Austin - Department of Finance

Craig Doidge

University of Toronto - Rotman School of Management

Date Written: May 2002

Abstract

Previous literature finds mixed empirical support for a relation between exchange rate exposure and its theoretical determinants and that exposure is of negligible economic importance. To re-examine the nature and the economic significance of the exchange rate to firm value relation, we construct an international database of over 17,000 non-financial firms from 18 countries. We find that firms' foreign activity is broadly and significantly related to exchange rate exposure and that after controlling for this activity, large firms are more sensitive to currency movements than small firms. Using a portfolio approach to investigate the economic importance of these effects, we find that firms with high international sales outperform those with no international sales during periods of large currency depreciations by 0.72 percent per month, whereas they underperform by 1.10 percent per month during periods of large currency appreciations. Exchange rate movements have an economically significant impact on firm value in ways that are consistent with theory.

JEL Classification: G15, G30

Suggested Citation

Williamson, Rohan and Griffin, John M. and Doidge, Craig, Does Exchange Rate Exposure Matter? (May 2002). Available at SSRN: https://ssrn.com/abstract=313060 or http://dx.doi.org/10.2139/ssrn.313060

Rohan G. Williamson (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Craig Doidge

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-8598 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/facBios/viewFac.asp?facultyID=craig.doidge

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